Trade concerns sours mood for investors

Market outlook for September 30th

The week ended lower as the markets continue to see money rotate to safety. After making a move to the previous highs last week, investors have been very cautious this week with the indexes dropping more than one percent. The news continues to focus on China/US trade challenges, the Fed backing of the markets, and President Trump finding new ways to rattle investors confidence. The latest is the rumor of delisting all Chinese companies on the US exchanges. That sent ETFs like FXI down 1.1% on Friday. One thing is certain… it is never dull on Wall Street. Just when things look to be moving forward with China it takes a good rumor to move it back to negative. As we look to next weeks trading we remain cautious and keep our stops in place. Taking what is offered and managing the risk.

The S&P 500 index closed down 15.8 points to 2961 as the index sells back from the recent highs. The market was lower to end the week as the index drops more than one percent for the week. Only one of the eleven sectors closed higher on the day led by utilities. The downside was led by technology and REITs. Plenty of questions remain relative to how this unfolds with the up and down movement and raises questions about the move higher. The long-term trend makes improvements with the return to the previous highs.

The NASDAQ index closed down 91.1 points at 7939. The index gave up 2.2% for the week as technology stocks struggle to hold near term trends higher. Questions remain relative to growth stocks and large caps have been very sluggish. QQQ reflects the struggles with a test of the $187 support. Technology is still the key sector to watch as this unfolds. A continued move lower at this level would be a negative for the broad markets.

Small-Cap Index (IWM) The sector had been leading the upside effort with money rotating into the growth stocks… that changed this week as we move back below the $152.28 support. Watching how this unfolds as we hit our stops locked in a small gain on our position.

Transports (IYT) The sector forfeited the move above the $192.42 resistance, but faded as earnings and warnings in the sector push the sector back below the $186.70 level of support. We hit our stop on positions locking in modest gains. Watching how this unfolds near term.

The dollar (UUP) The dollar moved higher as the Fed comments on further rate cuts say no more cuts this year. Watching how it responds going forward as it hits near term highs. Closed at $27.01.

The Volatility Index (VIX) closed at 17.2 as worries remain in play. The index had some big intraday volatility the last week after hitting the lowest levels in seven weeks previously… the activity/rumor mill is picking up. Watching how this unfolds near term.

KEY INDICATORS/SECTORS & LEADERS TO WATCH: 

MidCap (IJH) The sector moved to the July highs and is now testing the move. Watching how this unfolds. Failed to hold the $193.35 support.

Biotech (IBB) Tested support at $101 bounced, failed to hold the move and reconfirmed the downtrend from July high. Breaks the $101 level of support and setting ups a short side trade opportunity. LABD entry $22.75. Stop $22 (adjusted).

Semiconductors (SOXX) The sector bounced, cleared $210.92 resistance and moved back to the July highs. The last two weeks has tested the move and broke support at $10.92 on Friday. Watching how this unfolds with the short side setting up.

Software (IGV) The sector is trying to remain in the trading range, but showed weakness on Friday dropping 2.2% and testing the 200 DMA. Short side setup in place.

REITs (IYR) The upside trend remains on the long-term chart. Patience with our long term positions and short term watching how interest rate market unfolds. Bounced back from the selling and holding near the current highs.

Treasury Yield 10 Year Bond (TNX) were moving higher on the rate cuts by the Fed… then the global economic worries pushed rates lower as money rotates back towards bonds. The yield closed at 1.67% Friday down from 1.95% just two weeks ago. Rumor mill making money nervous and looking for safety. Watching how this one unfolds near term.

Crude oil (USO) The Saudi bombing impact has disappeared as supply returned faster than expected. Watching support at $52.50 and resistance at $58.25. Moved back below $58.25 support? Tested $55.60 on the downside move. Watching the downside effect.

Gold (GLD) The upside in gold has been driven on speculation of the rate cuts and global weakness overall. The tug-o-war of tariffs, rate cuts, and speculation are keeping gold in play and in a current trading range. The metal moved lower the last three days back to the lower end support at $140.37.

Emerging Markets (EEM) Broke lower in the trading range as tariff threats add to the worries about an economic slowdown. China helped by announcing trade talks would resume in October… China canceled the trip to the heartland and sector reacts. President Trump rumored to talk about delisting all Chinese stocks from US markets. Too much news driving the sector for my taste. Sold lower on the week offering a short side trade entry. We didn’t trade it as news driven speculation is not my cup of tea.

China (FXI/YANG) the country ETF is a good benchmark for what is taking place with the current news and tariffs. The move lower over the last week is a result of the chatter from China and the US about tariffs. Throw in the delisting of Chinese stocks and the downside accelerated. Watching how this unfolds currently. We already held a short side position with YANG. Entry $55.90. Stop $56 (adjusted).

(The notes above are posted every weekend and updated daily Bold Italics)

DAILY SCANS FOR OPPORTUNITIES AND RISK MANAGEMENT

FRIDAY’s Scans for September 27th: Rumors of delisting Chinese stocks in the US markets sent some towards the exits and pushed ETFs and listed Chinese companies lower on the day. Not a great end to the week and the technical look on the charts deteriorated showing some short-side trades and breaks of key support levels. Watching how this unfolds and which opportunities meet our risk profile and strategies.

  • Small Caps (IWM/TZA) downside entry at $45. The negative momentum towards growth stocks showed up all week. Trade position as we manage risk. Stop $45.65.
  • Software (IGV) broke support with negative signs on the chart. Short $211.04. Stop $213. Watching the 200 DMA.
  • Semiconductors (SOXX/SOXS) setup on the short-side. Looking for follow through next week.
  • NASDAQ 100 (QQQ/SQQQ) broke key support on Friday amid the news driven day… watching for follow through on Monday.
  • Continued trades adjusted… DGAZ, SCO, YANG, TMF
  • Additional opportunities to watch… TECS, DUST, UVXY, ZSL, EDZ, DRIP, RXD, GLL, GREK

THURSDAY’s Scans for September 26th: Tried to follow through upside but failed to continue the move. Another test. Holds support. Need some momentum in the growth stocks, but money is rotating to safety and the defensive sectors. Patience remains the key for now.

  • REITs (IYR), consumer staples (XLP), utilities (XLU), materials (XLB) and treasury bonds (TLT) are leading… not exactly a vote of confidence on what should have been a follow through day.
  • Biotech (IBB/LABD) downside trade broke through resistance at the $23.40 level for entry signal. Manage the risk of the trade.
  • Natural Gas (UNG/DGAZ) Bottom reversal in the short side ETF. Entry at the $105 mark. $122 resistance and adjusted stop to $112.
  • Energy (XLE/ERY) short side trade setting up as crude prices continue to stumble. $46.25 entry level to hold.
  • PATIENCE – let this unfolds and manage your risk.

WEDNESDAY’s Scans for September 25th: nice bounce at support. Looking for follow through and any upside opportunities… Cautious as money flow is still showing rotation to safety.

  • NASDAQ 100 (QQQ) need to see upside follow through at $190.
  • Semiconductors (SOXX) need to see follow through on the upside move. $214.25 level to clear.
  • Technology (XLK) 80.75 level to clear if bounce is to follow through on the upside move.
  • Small Caps (IWM) $79.25 level to clear if bounce on test is to reverse.
  • Retail (XRT) $42.30 level to clear for support test. Need this sector to continue upside leadership if we are to head higher overall.

TUESDAY’s Scans for September 24th: Some selling on the day was enough to have me looking at the downside trade. Small caps and growth stocks overall had a tough day with money rotating out and into bonds. Not the end of the world, but enough to put me on the cautious side of the equation.

  • Small Caps (IWM/TZA) Bold move lower negates the positive upside influence. The break of $155 hit our stops and now looking at the short side setup.
  • Biotech (IBB) this has been a weak link for the broad markets and the retest of the $101 support is in play. Watching the short side opportunity if it unfolds.
  • Treasury Bonds (TLT/TMF) money is rotating into bonds again as the market sees some testing and selling. Watching as indicator, plus we added a position on the bottom reversal.
  • Utilities (XLU) accelerated upside showing more rotation to safety.
  • NASDAQ breaks support at 8030. Negative selling in semiconductors (SOXX) leading the downside move. Watching both for short side trades if this unfolds.

MONDAY’s Scans for September 23rd: No big moves overall. There are some parts rotating as bonds move higher. Being patient and letting it all unfold as investors look for the next opportunity.

  • Gold Miners (GDX/NUGT) solid bump higher following through on the reversal Friday.
  • Biotech (IBB) watching for break higher from consolidation.
  • Semiconductors (SOXX) still in goo shape to move higher.
  • Solar (TAN) holding near the new highs.
  • Agriculture (DBA) will commodities benefit from the inflation data?

(The Scans are done daily and left on the page for one week to allow you to see the progression of the opportunities or warnings.)

Sector Rotation of S&P 500 Index:

  • XLB – Basic Materials broke support at the $55.95 level and reversed and moved back to the July highs… watching. Broke $58.13 support.
  • XLU – Utilities broke from the trading range and moved higher. Support is at the $62.50 mark. Collecting the dividend and letting it play out. Broke to new highs showing rotation to safety.
  • IYZ – Telecom held support at $27.62. Hit entry at $28.70 and testing the move higher. Stop $29.40 (stop hit). Moved lower breaking support at $29.35. Testing the 200 DMA.
  • XLP – Consumer Staples held support and the uptrend line. Watching how this unfolds near term. Testing the current highs.
  • XLI – Industrials moved back to support in the trading range and bounced clearing $76.80 resistance. Testing support with several down days.
  • XLE – Energy broke support at $60.50. Watching how the downside unfolds. Heading lower following the drop in crude oil.
  • XLV – Healthcare held support… small bounce higher and now more testing to the downside. Watching how it unfolds. Weakness in IHF, IHE, IBB, not helping.
  • XLK – Technology tested lower bounced and tried to move to new highs. Failed with selling in the semiconductors. Watching the short side setup.
  • XLF – Financials have been under pressure with lower interest rates and global weakness. Hit entry $27.60. Stop $27.75. Showing some positive on the week.
  • XLY – Consumer Discretionary moving higher on earnings… gapped higher and then tested the move to the July highs. Watching how we progress.
  • IYR – REITs held the $88 support and cleared the 90.80 resistance. Holding near the highs for now.

There are currently six sectors in confirmed short term uptrend. Two sectors in consolidation or sideways trends. Three in a confirmed downtrend. The result is SPY in a confirmed sideways trend. The test at the July highs is weakening on the downside. We have to remain patient and let this all unfold. Remember the parts make up the whole.

(The notes above are posted Weekly based on the activity of the previous weeks trading. The BOLD/ITALIC comments are current day changes worth noting.)

FINAL NOTES:

Markets found enough buyers to break from the five-week trading range and make a run at the July highs. Test of the move deepened this week leaving plenty of question marks for me. Some pressure on Friday from the rumored discussion of delisting Chinese stocks from the White House. The close Friday left plenty of questions we addressed above. I continue to raise the question about the conviction behind the move. There is a test of the break higher, but I still have my doubts about the move. Thus, managing our risk. Small caps took on a leadership role on the upside and now doing so on the downside as buyers quickly abandon growth stocks. The treasury bonds took a hit as money rotated out of bond and yields climbed to 1.95%, but this week money found its way back with yields at 1.67%. The risk remains high for upside opportunities as the underlying data remains weak. The market remains controlled by headlines as each day holds movement related to the speculation of what might happen. Trade with China and the US remains at the top of the list with both making interesting statements. Throw in Brexit and other global issues and you get the picture. The economic data showed mixed news and earnings show impact to tariffs with specific sectors. There are still too many questions unanswered and that invites speculation and volatility. Speaking of volatility the index bounced back above 17 after a brief stay at the 13 level. We remain focused on what is working and what is failing. Therein lies the opportunities. Manage your risk accordingly and let this unfold… one day at a time.

Disciplined entry and exit points allow you to manage your risk in up or downtrends. Investing and trading is a matter of a defined strategy implemented with discipline. It is not magic. It is not being a prophet. It is about following your strategy one day at a time. 

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb

The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develop based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.